SECURITY AGREEMENT

Exhibit 4.2

SECURITY AGREEMENT

As of April 16, 2003, at Columbus, Ohio, Quality Products, Inc., a Delaware corporation (the “Bor­rower and Guarantors”), and QPI Multipress, Inc., an Ohio corporation, and Xxxxxxxx Xxxx Corpo­ration, an Ohio corporation (collectively the “Guarantors”), enter into this Security Agreement with Xxxxxxx X. and Xxxxx X. Xxxxxxx as joint tenants with rights of survivorship, Xxx X. Xxxxxxx, Xxxxx X. Xxxxxxx, Xxxxxxxx X. Xxxxxxxx, Xxxxxxx Xxxxxxx and Xxxxxx X. Xxxxxxx as joint tenants with rights of survivorship, RD&J Corporation, Xxxx X. Xxxxxxx Living Trust, Xxxxx X. Xxxx, and Xxxxx X. Xxxxx Decla­ration of Trust Dated September 24, 1992 (“Lenders”).

WITNESSETH:

WHEREAS, concurrently with the execution of this Agreement, Lenders, Borrower and Guarantors have executed a Promissory Note and Guarantee under which the Lenders agree to lend U.S.$770,000 to the Borrower;

WHEREAS, to induce Lenders to lend this money and in consideration thereof, the Borrower and Guarantors have agreed to grant Lenders a security interest in certain assets, all on the terms set forth below; and

WHEREAS, the parties intend that the $770,000 shall be used to pay off Quality Products, Inc.’s credit line with U. S. Bank with an approximate balance of $800,000, release that bank’s senior lien on Borrower’s and Guarantors’ assets and grant a first lien on substantially the same assets to Lenders:

NOW, THEREFORE, the parties hereby agree as follows:

1.  Security; Enforcement; Application of Proceeds -

(a) To secure payment and performance of its obligations under the Promissory Note, Guaran­tee, and this Agreement, Borrower and Guarantors hereby transfer, assign, and pledge to Lend­ers and grant Lenders a security interest in all of the following (collectively “Collateral”):

(i) All of Borrower and Guarantors’ present and future accounts (as the term “account” is defined in the Ohio Uniform Commercial Code) and other present and future receiv­ables including, without limitation, any right to payment under a letter of credit through which any such account or other receivable is to be paid and any promissory note, xxxx of exchange, or other instrument evidencing or issued in place of or in satisfaction of any such account or other receivable or pursuant to which any such account or other re­ceivable is to be paid;

(ii) Any guarantee or collateral securing any of the foregoing;

(iii) Any other tangible and intangible personal property of Borrower and Guarantors of whatsoever nature and kind and where ever situated, whether the property of Borrower and Guarantors now or in the future, including, without limitation, “general intangi­bles”, “goods”, “inventory”, “equipment”, “chattel paper”, “documents” and “instru­ments” as these terms are defined in the Ohio Uniform Commercial Code;

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April 16, 2003

(iv) The proceeds from any of the foregoing including, without limitation, proceeds from any insurance insuring the same against risk of loss or non-payment.

(b) At the request of Lenders, Borrower, and Guarantors shall deliver and endorse to or in ac­cordance with the instructions of Lenders any of the Collateral.

(c) Upon (i) failure by Borrower and/or Guarantors to perform any of their obligations or cove­nants, whether under the Promissory Note, Guarantee, or this Agreement or any other agree­ment, (ii) any representation or warranty made by Borrower and/or Guarantors to Lenders, whether under the Promissory Note, Guarantee, or this Agreement or any other agreement, be­ing false, (iii) the occurrence of any other default under the Promissory Note or Guarantee, or (iv) the occurrence of any event which, with the giving of notice or passage of time or both, would constitute a default under the Promissory Note, then, in any such case, the Holder may, with three (3) business days notice, take such actions as he deems advisable with respect to the Collateral, including, without limitation: (i) directing account debtors to make payment directly to Holder; (ii) settling, compromising, or adjusting any Collateral, which shall be binding upon Borrower and Guarantors; (iii) commencing, prosecuting and defending any proceeding to collect or protect any of the Collateral or any other proceeding with respect to any Collateral; and (iv) selling any Collateral at public or private sale on such terms as Holder deems appropri­ate.  At any such sale Lenders may be the purchaser.  Holder shall give Borrower and Guaran­tors at least ten (10) days’ notice of any such sale.

(d) The receipts and other proceeds from any of the Collateral shall be applied as follows: first, to the satisfaction of all obligations of the Borrower and Guarantors to Lenders under the Promissory Note and this Agreement in such order as the Lenders determines; and then, any balance to Borrower and Guarantors.

2.  Borrower and Guarantors’ Representations, Covenants, and Warranties - The Borrower and Guarantors hereby make the following representations, covenants, and warranties for the benefit of the Lenders:

(a) Quality Products, Inc., is duly incorporated and validly existing under the laws of Delaware, QPI Multipress, Inc. and Xxxxxxxx Xxxx Corporation, are incorporated and validly existing un­der the laws of Ohio; each of these corporations is duly qualified to conduct business in the State of Ohio; and each has the corporate power and authority to own its property and assets and to carry on its business as it is now being conducted;

(b) Each of these corporations has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement, the Promissory Note, and Guarantee and any other agreements and documents executed under or in connection with this Agreement, and each has taken all necessary corporate action to authorize the execution, delivery and perform­ance of this Agreement; this Agreement, the Promissory Note and the Guarantee constitute le­gally binding obligations of Borrower and Guarantors and are enforceable against Borrower and Guarantors in accordance with their respective terms;

(c) Upon payment to U.S. Bank and release of that bank’s security interest, there shall be no claims, security interests, options, rights or other privileges outstanding with respect to any of

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the Collateral or any of Borrower and/or Guarantors’ other assets except as listed in Schedule A.  Borrower and Guarantors warrant and covenant as follows:

(a) Except for security interests granted in favor of U.S. Bank and any liens set forth in Schedule A attached hereto, Borrower or Guarantors are, or as to the Collateral arising or to be acquired after the date hereof, shall be, the sole and exclusive owner of the Collateral, and the Collateral is and shall remain free from any and all liens, security interests, encumbrances, claims, and interests, and no security agreement, financing statement, equivalent security, or lien instrument or continuation statement covering any of the Collateral is on file or of record in any public office;

(b) Except for security interests granted in favor of the Bank and any liens or encum­brances set forth in Schedule A, Borrower and Guarantors shall not create, permit or suffer to exist, and shall take such action as is necessary to remove, any claim to or in­terest in or lien or encumbrance upon the Collateral and shall defend the right, title and interest of Lenders in and to the Collateral against all claims and demands of all persons and entities at any time claiming the same or any interest therein;

3.  Covenants of Borrower and Guarantors to Act - The Borrower and Guarantors will take or cause to be taken such action and execute and deliver or cause to be executed and delivered such other documents as the Lenders may request:

(a) In connection with this Agreement and any of the Collateral, and

(b) To perfect and to maintain the perfection of Lenders’ security interest in any of the Collat­eral, including, without limitation, delivering any Collateral to the Lenders and executing and filing financing and other statements under the Uniform Commercial Code in effect in any ju­risdiction; and Borrower and Guarantors hereby authorize the Lenders to sign and file any such statement on its behalf or file any such statement without its signature.

4.  Negative Covenants of Borrower and Guarantors - The Borrower and Guarantors will not with­out prior written consent of the Lenders:

(a) Sell, pledge, transfer, assign, or grant a security interest in any of the Collateral or any of Borrower and/or Guarantors’ other assets other than sales of inventory in the ordinary course of business and purchase money security interests in equipment as described in Schedule A.

(b) Should Borrower default on the Promissory Note to Lenders under any of its default provi­sions, Borrower shall make no payment, including interest or principal, under that certain $300,000 Note dated October 15, 2002 to Xxxxxx Xxxxxxx.

(c) Whether or not Borrower defaults on the Promissory Note to Lenders, Borrower shall be permitted to make payment under any future settlement agreement reached in the Granville Solvents case.

5.  Expenses - Borrower and Guarantors shall pay:

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(a) Reasonable expenses (including, without limitation, legal fees) incurred by Lenders in con­nection with negotiating and preparing this Agreement, the Promissory Note, and Guarantee and in connection with the transactions contemplated by these Agreements;

(b) Reasonable expenses (including, without limitation, legal fees, court costs, the cost of ap­pellate proceedings) incurred by Lenders in connection with (i) enforcing, preserving, and de­fending any rights and any security interest under this Agreement, (ii) protecting and collecting any of the Collateral, and (iii) any proceeding respecting any of the foregoing.

Borrower and Guarantors shall be jointly and severally liable to pay Lenders interest at the rate of 10% per annum simple interest on any amount that Borrower and Guarantors owe to Lenders under this Section: (i) from the date Lenders expend the amount in any case where the Lenders has requested Bor­rower and Guarantors pay the same and Borrower and Guarantors failed to do so, or (ii) from the date Lenders request reimbursement in any case where Lenders have not requested Borrower and Guaran­tors to pay the same.

6.  Governing Law - This Agreement shall be governed by and construed in accordance with the law of the State of Ohio.

7.  Dispute Resolution - The Parties agree to submit any disputes involving money or damages greater than $10,000 relating to this Agreement and/or transactions, duties, or obligations to be per­formed under this Agreement, to mediation with a mediator approved by the Parties to the dispute.  If the Parties resolve their disputes through mediation, the Parties shall share the mediator’s fees evenly but pay their own attorneys’ fees and other expenses related to mediation.  If mediation fails to resolve all disputes within thirty (30) days after the Parties submit the dispute to a mediator, then either Party may file a court action or request arbitration.  The Parties agree that mediation is a pre-condition to filing an action of any kind.  The prevailing Party in any action or arbitration relating to transactions contemplated by this Agreement shall be entitled to costs and expenses including rea­sonable attorneys fees and the attorney’s fees and expenses incurred in connection with mediation that failed to resolve the dispute.  Claims of $10,000 or less may be submitted to mediation or as­serted in any other legal manner including filing a court action.

8.  Waiver - No failure to exercise and no delay on the part of Lenders in exercising any right, power or privilege under this Agreement or granted to them by law will operate as a waiver thereof; and any single or partial exercise of any right, power, or privilege shall not preclude any other or further exer­cise thereof or the exercise of any other right, power or privilege.  Lenders may waive any right or other matter only by an instrument in writing signed by the Lenders.

9.  Rights and Remedies - The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law or by any other agreement.  Lenders will not be required to resort to or pursue any of its rights or remedies under or with respect to any other agreement or with respect to any other collateral, guarantee or other security before pursuing any of its rights or remedies under this Agreement.  The Lenders may pursue its rights and remedies in such order as it determines.

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10.  Notices - Notices under this Agreement shall be sufficient only if sent (a) by overnight courier, or (b) by facsimile or other electronic means and by U. S. Mail, or (c) personally delivered to the other Party.  Notices shall be addressed as follows:

To Borrower and Guarantors:	To Lenders:
Quality Products, Inc.	Xxxxx X. Xxxxxxx
0000 Xxxxx Xxxxx Xxxxxx	Xxxxx 0000
Xxxxxxxx, Xxxx 00000	000 Xxxxxxxx Xxx.
	Xxxxxxx, XX 00000
Tele: (000) 000-0000
Fax: (000) 000-0000	Telephone: (000) 000-0000 or (847)
E-mail: xxxxxxxx@xxxxxxxxxx.xxx	000-0000
	Fax: (000) 000-0000
With a copy to:	E-mail: xxxxxxxxxxxx@xxxxxxx.xxx
C. Xxxxxxx Xxxxx, Attorney
Suite 263
00000 Xxxxxxxx Xxxx.
Xxxxxxxx, XX 00000-0000
Tele: (000) 000-0000
Fax: (000) 000-0000
E-mail: xxxxx@xxxxxxxxx.xxx

Notice shall be deemed given on receipt.

11.  Lender’s Representative - Xxxxx Xxxxxxx is the Holder of the Promissory Note on behalf of the Lenders.  Lenders agree to act through Xxxxx Xxxxxxx as their agent for purposes of this Agreement.  Borrower shall consider Xxxxx Xxxxxxx as the duly appointed agent for the Lenders with the sole right to act as the Holder of the Note unless and until he is replaced by a writing signed by all Lend­ers except Xx. Xxxxxxxx and delivered to Borrower and Guarantors.

10.  Amendment - This Agreement may not be amended or terminated except by an instrument in writing signed by the Borrower and Guarantors and the Holder.

IN WITNESS WHEREOF, the Lenders and the Borrower and Guarantors execute this Agreement as of the day and year first above written.

BORROWER

Date: April 16, 2003	QUALITY PRODUCTS, INC.
	By:	/s/Tac X. Xxxxxxx
	Chief Financial Officer
	Name and Title

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GUARANTORS

Date: Xxxxx 00, 0000		XXX MULTIPRESS, INC.
		By:	/s/Tac X. Xxxxxxx
		Chief Financial Officer
		Name and Title
Date: April 16, 2003		XXXXXXXX XXXX CORPORATION
		By:	/s/Tac X. Xxxxxxx
		Chief Financial Officer
		Name and Title
LENDERS
Date: April 16, 2003			/s/Xxxxxxx X. Xxxxxxx
		Xxxxxxx X. Xxxxxxx
		And
			/s/Xxxxx X. Xxxxxxx
		Xxxxx X. Xxxxxxx
	As joint tenants with rights of survivorship
Date: April 16, 2003			/s/Xxx X. Xxxxxxx
		Xxx X. Xxxxxxx
Date: April 16, 2003			/s/Xxxxx X. Xxxxxxx
		Xxxxx X. Xxxxxxx
Date: April 16, 2003			/s/Xxxxxxxx X. Xxxxxxxx
		Xxxxxxxx X. Xxxxxxxx
Date: April 16, 2003			/s/Xxxxxxx Xxxxxxx
		Xxxxxxx Xxxxxxx
		And
			/s/Xxxxxx X. Xxxxxxx
		Xxxxxx X. Xxxxxxx
	As joint tenants with rights of survivorship

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Date: April 16, 2003		RD&J CORPORATION
		By:		/s/Xxx X. Xxxxxxx
		Xxx X. Xxxxxxx, Vice President
Date: April 16, 0000		XXXX X. XXXXXXX LIVING TRUST X/X XXXXX 00, 0000
		Xx:	/s/Xxxx X. Xxxxxxx
		Xxxx X. Xxxxxxx, Trustee
Date: April 16, 2003			/s/Xxxxx X. Xxxx
		Xxxxx X. Xxxx
Date: April 16, 2003	XXXXX X. XXXXX DECLARATION OF TRUST DATED SEPTEMBER 24, 1992
		By:	/s/Xxxxxxx X. Xxxxxxx
		Xxxxxxx X. Xxxxxxx
		Under Power of Attorney for Xxxxx X. Xxxxx

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Schedule A

Permitted Other Security Interests

1.  Security interest in the Cincinnati Mill as evidenced by note and security agreement issued to Xxxxxxx Inc.

2.  Any and all past or future purchase money security interests in equipment necessary or appropri­ate for conducting the business of Borrower and/or Guarantors.

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